Calcot's new leadership share insights on cooperative's future

Harry Cline Farm Press Editorial Staff | May 01, 2004

EDITOR'S NOTE: Calcot's new leadership has been in place for several months. New board chairman, Kern County, Calif., producer Charlie Fanucchi, is probably the most diversified farmer ever to serve as Calcot's chairman, offering perhaps a broader perspective than ever before from the chairman's chair. He is a Fresno State University graduate just like Calcot's new president, 60-year-old Bob Norris.

Norris has spent his entire career with Calcot and is the first California native to be Calcot president. Calcot is the West's largest cotton marketing cooperative andWestern Farm Pressinterviewed Fanucchi and Norris recently to get their insight on the cooperative that has had its share of controversy recently and on the future of Far West cotton.

The man who would be president became president.

Bob Norris, 60, has spent entire cotton industry career at Calcot, the largest cotton marketing cooperative in the West and the second largest cooperative in the U.S.

About two years ago he had hoped to ascend to the presidency of the 1,500-member cooperative headquartered in Bakersfield, Calif. He was obviously disappointed when the board appointed Australian David Farley. Nevertheless, he remained at Calcot and was named executive vice president as the second in command.

Norris elected to stay with the cooperative because he wanted to remain at Calcot and in the cotton industry. The decision eventually led him to the president's office.

“I have made a lot of friends and contacts in the industry. I like being in the business…it is a special business for me. I like the growers politics. Whether I became president of not, I wanted to stay in the business.”

He became president eight months ago when the Calcot board fired Farley. Since then the cooperative has been in a damage control mode, trying to recover not only from the Farley era, but from the earlier overpayment fiasco that left more than a few growers wondering about the cooperative's management and board.

Farley was brought in to “shake up” the cooperative with new ideas. The shaking sent shock waves through the industry and internally at Calcot. The shaking sent the Richter scale off the paper roll, and Farley packed back off to Australia in less than a year after he arrived.

When Farley departed, the board immediately selected Norris as interim president. He later got the job permanently and since then has become a settling factor within the cooperative.

“Bob is a great leader,” says Calcot board chairman Charlie Fanucchi. “He sees the future, and he has the support of a young staff that represents great people coming up in Calcot.”

Settled concerns

Fanucchi said Norris settled many grower concerns at the cooperative's round of producer meetings this fall. “We did not have many questions about the controversial issues because Bob gave a fair and honest report of what was happening on that front,” said Fanucchi.

Norris is a quiet man and a far cry from the flamboyant Farley. He deflects personal attention by praising Calcot's staff. “I am extremely fortunate to have such a professional staff. After all that they have been through recently, I think we are more solid company than ever before.

“We have as strong and dedicated staff as we have ever had, particularly in sales,” Norris said. “Our sales people are well-respected in the domestic and international markets. Our warehousing is one of the best around.”

Norris started his Calcot career as a grower services assistant. He has worked in virtually every Calcot division.

Calcot had been through plenty of turmoil before Farley was fired. An advance overpayment that had to be repaid by growers and a failed attempts to start an almond marketing cooperatives left Norris and the Calcot board fearful as another February sign-out period approached this year. They had seen one large bail-out after the overpayment, and were fearful another might be at hand after the Farley fiasco and changes in leadership.

“No sign-outs are good for a cooperative. We have given the competition plenty of ammunition to use against us recently,” Norris admits.

“Nevertheless, the sign-out was very good compared to what we have seen in the past — and we continue to sign in new members,” he said.

1.2 million bales

Norris expects Calcot to handle as many as 1.2 million bales this season, roughly half the production in both states. “Acreage in both states has increased this year. It is always nice to get off to a good start, but it is a long way to harvest.”

While Norris has become the stabilizing factor Calcot needed, he knows it will be the cooperative's marketing results that will satisfy growers.

It will be a challenge because it has been one of the most volatile years price-wise the industry has seen in awhile, and this will likely not change, said Norris.

This year's crop market has been like yo-yo on speed. “It went up way too fast early in the season; broke and went down; went back up and broke down again. It is an extremely difficult market in which to trade,” said Norris. Calcot's president believes California and Arizona uplands are now underpriced.

In Calcot's latest market outlook, the cooperative reports export sales continue strong, and in fact have been stronger than expected. Unfortunately, price levels aren't nearly as high as producers would like to see.

Ending stocks will be close to 3 million bales, and China's “voracious appetite looks to chew up a lot of cotton between now and harvest, so availability of quality cotton during the summer and even into the fall could be very tight.”

Nevertheless, mills are buying cotton only on an as-needed basis, having seen firsthand the gyrations earlier this year, according to Calcot's most recent market watch report. It could be that there will be another price spike in September and October, similar to 2003.

These low prices are especially frustrating to Western marketers because California and Arizona growers are enjoying strong demand and premiums. However, the foundation upon which those premiums are being added is too low, according to Norris.

“California and Arizona cotton has turned into a niche market because it is some of the finest uplands in the world,” said Norris. Western U.S. cottons are netting premiums over competing growths. However, they are not getting what they are worth. They are being strangled by low basic upland prices, according to Norris.

Large supply

The problem is a large supply, almost 400,000 bales, of 1 1/16th certificated cotton “waiting to go to the board to tender against positions,” said Norris.

This is cotton that once had a home in the domestic market. However, with the collapse of the domestic industry, it must be sold on the international market where it is discount-quality cotton.

The U.S. is now exporting two-thirds of its crops with one-third going to what is left of the domestic industry. “Just the opposite used to be true,” said Norris.

“This is one of the dynamics that is really changing the market,” said Norris.

The standard for the international market is 1 3/32. The stock certificated on the futures board is “discount cotton” on the world market and “it has not been discounted enough for the international marketplace.”

“It is holding the lid on the futures market,” said Norris. This begs the question. Why not change the futures standard to a higher grade.

Norris said it is being talked about among “some major merchants” who say raising the quality standard would more truly reflect the marketplace today and likely in the future. However, it could create chaos in the market with a large percentage of U.S. cotton no longer eligible for certification on the futures market.

Fortunately, Pima cotton is now a key part of San Joaquin Valley and that softens the blow of low upland prices for Pima producers. Norris is optimistic about Pima prices for the 2004 crop.

“I am not as bearish on Pima for this coming season as some are,” said Norris, explaining that 2004 SJV acreage is not so large that it should depress prices significantly from current old crop prices of $1.20 per pound.

“If you look at the acreage increase for this year, it is not that large” considering the tight supplies and strong Pima demand.

Any talk of cotton markets eventually turns to China. The U.S. has become so dependent on China that a move from the world's largest buyer of raw cotton and seller of textiles either way can send markets into a tailspin or rocketing skyward as the industry has seen so far this marketing year.

China's uncertain buying habit causes cotton merchants and farmers to order in extra jars of Rolaids.

Stable customer

Maybe it is wishful thinking, but Norris believes China will become a more stable customer of U.S. cotton now that China is in the WTO. Plus Chinese people continue to move off farms into the cities and the Chinese government is focusing on feeding these people.

High value crops are replacing cotton and other low value crops to feed the masses as well as increase the income for the farms that are left.

“We have seen this in garlic, walnuts and apples. They certainly are trying to diversify their agriculture,” said Morris.

“My sense is that we could be doing a good bit of business every year with China compared to the feast or famine situation we have seen in years past,” said Norris. Calcot's sixth president added however, that while information coming out of China has improved considerably in recent years, cotton remains a government controlled industry “and we will still make a lot of decisions on China without a lot of good information about China.”

Western producer will continue to provide cotton for China and other nations, but there will never be as much cotton as there once was in California and Arizona, believes Norris.

Calcot will never see another 2.4-million-bale year, the highest annual sales ever recorded by the cooperative.

“I think we may see stabilization of acreage at current levels,” said Norris.

What happens then to an organization structured to handle 2 million bales of cotton or more with less than 1.5 million arriving at the warehouses?

To cover overhead, Calcot tried almonds. That failed quickly. Norris does not see Calcot venturing that far away again.

There have been cutbacks in Calcot overhead, however, the cooperative is still looking to hedge its bets against a dwindling Western cotton acreage by broadening its operations.

Norris reasons if another large California marketing cooperative, Sunkist, can market Brazilian oranges, Calcot could market cotton for cotton producers in states or even nations.

“Everyone is looking for something more. If there is a possibility of taking the Calcot model elsewhere, it is something we have to explore. It is on the radar,” said Norris. “We want to look at areas that will flow along with what we are doing now.”

For more than 75 years, that has been marketing California and Arizona cotton.

“As long as there is cotton in Arizona and the desert of Southern California, we will be a player. As long as cotton is grown in the San Joaquin Valley, we will be a player,” said Norris.